Variable levy is a method to resolve the problem that some taxable items are unable to offset against input VAT to avoid double taxation, which is implemented in many industries.  

1.       Duty free sales of small-scale taxpayers

Small-scale taxpayers who are applicable to variable levy shall determine if they can enjoy VAT exemption policy of small low-profit enterprises based on the deducted sales amount.

2.       Annual taxable sales of general taxpayers
   

Annual taxable income includes declared sales, the additional sales in tax inspection and adjusted sales in tax payment appraisal. The annual taxable income is required to be calculated in full amount for general taxpayers who sale service, intangible assets or real estate as well has deduction items.

3.       Sales amount of production and living service taxpayers

Production and living service taxpayers are required to determine whether they are qualified to enjoy the preferential policy of additional input VAT deduction based on the deducted sales amount.

4.       Issue invoices for variable levy

According to China’s tax law, variable levy can issue special VAT invoices for the full sales amount except for some items. There are two common situations as following:

(1)     No special VAT invoice can be issued for the deductable part

Under this situation, the output VAT paid by the seller is in line with the input VAT offset by the buyer. The taxpayers can issue general VAT invoices in full sales amount, or issue general VAT invoices for the deductable part and issue special VAT invoice for the balance, or issue invoices based on the automatic function in tax system. Below items are mainly included in this kind of situations:

(a)	Brokerage service. Taxpayers cannot issue VAT special invoices for government-managed funds or administrative fees that collected from the client, the receipts of deductable part shall be issued by the payee.
(b)	Tourism service. Taxpayers can choose to calculate the sales amount as the balance of the total received payments less accommodation fees, meal fees, transportation fees, visa fees, admission fees and travel expenses that collected from the clients and paid to other agencies. Taxpayers shall issue general VAT invoices for the deductable part instead of special VAT invoices.
(c)	Labour dispatch service. Taxpayers can choose to calculate the sales amount as the balance of the total received payments less salaries, welfare, social insurance and housing provident fund paid to the individuals on behalf of the client. Taxpayers shall issue general VAT invoices for deductable part instead of special VAT invoices.
(d)	Security service. The method to issue invoices is the same as labour dispatch service.
(e)	Human resource outsourcing service. The salaries paid to client’s employees and social insurance and housing provident fund paid on behalf of the client shall be excluded from the taxpayer’s sales amount. Taxpayers shall issue general VAT invoices for deductable part instead of special VAT invoices.
(f)	Visa agent service. Taxpayers shall calculate the sales amount as the balance of the total received payments less the visa fees and certification fees collected from the service recipient and paid on behalf of the client to the Ministry of Foreign Affairs and foreign embassies in China. Taxpayers shall issue general VAT invoices for deductable part instead of special VAT invoices.
(g)	The purchase price paid on behalf of the client is not included in the sales amount of the agent who import goods that exempted from import VAT. Taxpayers shall issue general VAT invoices for deductable part instead of special VAT invoices.
(h)	Financial commodity transfer. Taxpayers shall calculate the sales amount as the balance of the selling price less the buying rate, special VAT invoices are not allowed to be issued.
(i)	From 25 July 2018, air transport agents shall calculate the sales amount as the balance of the total received payments less the net payment of domestic air tickets and relevant fees paid to the air transport enterprises or other agencies that collected from the clients. The taxpayers shall issue itinerary or general VAT invoices for the full amount of received payments.
(j)	Air transport service. Airport construction fees and payments that received for the sale of air tickets of other airport transport enterprises shall be excluded from the sales amount of the taxpayers.

             

 (2)     Special VAT invoice can be issued for the deductable part

 Under this situation, the seller can issue special VAT invoices at full sales price and pay tax under variable levy method, the buyer can offset against the input VAT in full amount. Below items are mainly included in this kind of situation:

(a)	General taxpayer can choose simple taxation method to transfer fixed assets (self-built real estate exclusive) that obtained before 30 April 2016, they shall calculate the sales amount as the balance of the total received payments less the original purchase price or the valuation at the time of acquisition of the fixed assets.
(b)	Taxpayers of construction service can deduct the amount that paid to the subcontractor under simple taxation method and in the process of tax prepayment.
(c)	Real estate development enterprises who are general taxpayers shall calculate the sales amount as the balance of the total received payments less the land price paid to government department at the time of land transfer.
(d)	Pilot taxpayers who provide financial leasing services shall calculate the sales amount as the balance of the total received payments less the loan interest (including foreign currency and RMB loan interest), bond interest and vehicle purchase tax.
(e)	Taxpayers who provide property management services shall calculate the tap water charge as the balance of the total received payments less the tap water fees paid to other parties.
(f)	Taxpayers who transfer the land use rights obtained before 30 April 2016 can choose simple taxation method and calculate the sales amount as the balance of the total received payments less the original price paid for obtaining the land use rights.
(g)	Pilot taxpayers who provide passenger terminal services shall calculate the sales amount as the balance of the total received payments less the freight paid to the carrier.